Greece's financial woes punish oil and stock prices

Greeks' woes punish oil, stock prices

CHRIS KAHN, ASSOCIATED PRESS

Published 5:30 am, Thursday, June 16, 2011

NEW YORK — The financial crisis in Europe is sending oil prices back to where they were four months ago.

Oil prices fell more than 4 percent Wednesday amid worries that a financial crisis in Greece could spread, with European banks getting burned if the country defaults on its debt. That sent the dollar surging against the euro, another negative for oil. And the Europe news comes on the heels of recent U.S. economic weakness and signs of declining demand for oil and gasoline.

Concerns about Europe's economy also rippled through Wall Street. Stock markets in the U.S. gave back all of the gains they made Tuesday - and then some. The Dow Jones industrial average tumbled nearly 179 points. Investors piled into lower-risk assets like the dollar and U.S. government bonds.

"Things are very unsettled right now," Michael Lynch, president of Strategic Energy & Economic Research, said. Three years after the U.S. banking meltdown, investors remain skittish about banks, Lynch said. "Just a whiff of a crisis, and everyone's ready to bolt."

Benchmark West Texas Intermediate crude plunged $4.56 on Wednesday to settle at $94.81 per barrel on the New York Mercantile Exchange. That's the lowest level since late February, when a rebellion in Libya closed off that country's oil exports.

Riots broke out in Greece on Wednesday over proposed austerity measures as the government struggles with a simmering debt crisis. Moody's ratings service said it may downgrade three big French banks that face losses on Greek bonds.

If Greece defaults on its debt it could cause investors to dump the bonds of other weak European nations like Portugal, Spain and Ireland, raising borrowing costs for those countries. It could also cause the dollar to further strengthen against the euro, making U.S. products more expensive abroad. That hurts corporate profits.

The euro lost 2 percent against the dollar Wednesday. Oil tends to fall as the dollar rises because oil is priced in dollars and becomes more expensive for investors holding foreign currencies as the dollar gets stronger.

$84 in February

Oil began a steady rise in February from about $84 a barrel after unrest swept through Libya and shut in its 1.5 million barrels of daily oil exports. Protests broke out in other countries in the oil-rich Middle East.

Oil hit a three-month high of $113.90 in early May but fell 17 percent in five days as experts warned high energy costs were slowing the global economic recovery. Gasoline demand in the U.S. fell as pump prices hit $4 a gallon or more in a number of states.

The Energy Information Administration on Wednesday reported that crude oil supplies in the U.S. shrank more than expected last week while wholesale gasoline demand increased..

The energy agency also said gasoline supplies increased last week, though much less than analysts expected. Gasoline demand increased slightly as well, but independent analyst Jim Ritterbusch said the U.S. continues to sit on a comfortable supply and relatively high pump prices should limit drivers' trips to the gas station.

Retail gasoline prices continued to fall, although they're still about $1 per gallon higher than a year ago. Gas fell almost a penny to a national average of $3.696 per gallon, according to AAA, Wright Express and Oil Price Information Service.

A gallon of regular is 26.6 cents cheaper than it was last month. In Houston Wednesday, drivers paid an average of $3.539 a gallon, down from $3.541 Tuesday.

Consumer goods

Overall consumer prices rose 0.2 percent last month, the smallest increase in six months, the Labor Department said Wednesday. Energy prices declined 1 percent in May, the first drop in nearly a year.

Still, Americans paid more for cars, clothing and hotel rooms in May. That drove so-called "core" consumer prices, which exclude volatile food and energy, up 0.3 percent, the most in nearly three years.

That increase, which was higher than analysts expected, contributed to the bleak day on Wall Street.

The combination of a stagnant economy and rising inflation led some economists to worry that the country might be headed toward a repeat of the 1970s phenomenon of stagflation.